Drugmaker Schering-Plough Corp. has agreed to plead guilty to defrauding the Medicaid insurance program and will pay the federal government $345.5 million in fines and damages, the company and prosecutors said on Friday.
The plea came on the same day rival drugmaker Bristol-Myers Squibb Co. agreed to pay $300 million to settle a shareholder class action lawsuit stemming from charges it improperly boosted earnings by encouraging wholesalers to over-stock its drugs, a practice known as “channel-stuffing.”
Under the agreement with the U.S. Attorney’s Office in Philadelphia, Schering-Plough will plead guilty to one federal criminal charge that it paid kickbacks to two health maintenance organizations and pay a fine of $52.5 million.
It will also pay $293 million in civil damages to cover the loss suffered by Medicaid. Schering-Plough said the amounts will be paid out of legal reserves it previously set aside.
“There’s a line where a drug company’s conduct crosses from marketing efforts to criminal conduct,” said Patrick Meehan, the U.S. attorney in Philadelphia, whose office oversaw the investigation.
Schering-Plough admitted paying cash and other incentives to HMOs operated by Cigna Corp. and PacifiCare to keep its allergy drug Claritin on their list of approved medicines. The incentives meant the actual price paid by the HMOs for the drug was lower than the price officially charged to them.
Prosecutors said Schering-Plough had violated federal law by failing to provide its lowest price on the same drug to Medicaid, the government health program for the poor.
Cigna and PacifiCare were not charged, but Meehan said none of the behavior of those involved should be exonerated.
“Let this be a statement that all parties need to look at their conduct,” Meehan said.
Both Schering-Plough and Bristol-Myers have been struggling to sustain profit growth as their top-selling drugs lose patent protection, though Schering-Plough just launched a new cholesterol-fighting drug that many believe could turn its fortunes around